NY REAL ESTATE BUYER REBATES ARE LEGAL
Real estate broker commission rebates are legal in 40 states, including New York state. NY Attorney General Eric T. Schneiderman issued a public letter confirming that commission rebates are legal.
New Yorkers are encouraged to take advantage of lower commissions when buying a home. Changes in the NYS law allows for the real estate agents, particularly buyer agents, to rebate a portion of their commissions to clients.
Such rebating is also procompetitive and good for consumers.
The updated law makes it clear that when a buyer’s agent receives a portion of the transaction commission from the seller or the seller’s agent, he or she is permitted to rebate a portion of those funds to the buyer in the transaction.
Attain full transparency regarding the home buyer rebate. Proactive buyers and agents start with a real estate commission rebate agreement. Let the buyer agent know to establish a rebate agreement before your buyer agency relationship begins.
NY REAL PROPERTY LAW ALLOWS COMMISSION REBATES
Article 12-A Section 442 on Splitting commissions of New York’s Real Property Law was amended on December 2104 to leave no room for debate. New York real estate commission rebates are 100% legal.
Except when permitted pursuant to the foregoing provisions of this section no real estate broker shall pay or agree to pay any part of a fee, commission, or other compensation received by the broker, or due, or to become due to the broker to any person, firm or corporation who or which is or is to be a party to the transaction in which such fee, commission or other compensation shall be or become due to the broker; provided, however, that nothing in this section shall prohibit a real estate broker from offering any part of a fee, commission, or other compensation received by the broker to the seller, buyer, landlord or tenant who is buying, selling, exchanging, leasing, renting or negotiating a loan upon any real estate including the resale of a condominium or cooperative apartment. Such fee, commission, or other compensation must not be made to the seller, buyer, landlord or tenant for performing any activity requiring a license under this article.
US DEPARTMENT OF JUSTICE ON HOW BUYER AGENT COMMISSION REBATES BENEFIT CONSUMERS
Rebates make buying a home less expensive as explained by the US Department of Justice’s Antitrust Division.
Increased competition with commission rebates help to keep the initial cost of home ownership competitive rather than out of reach for many families.
Chart of how a buyer rebate works. Source: US Department of Justice
Rebates can save consumers several thousand dollars in a single transaction. For example, if a broker offers to refund one-third of its commission [as a buyer rebate] to the homebuyer, the average buyer of a $300,000 home could save $2,500 to $3,000 (based on the 2.5% to 3% commission rates typically earned by the buyer’s broker).
NYS ANTITRUST BUREAU ON THE LEGALITY OF REBATING COMMISSIONS
The New York State Antitrust bureau wants buyers and brokers to be well informed that rebating commissions is legal in New York. It encourages competitive conduct in the real estate industry.
Both buyers and brokers should know that rebating commissions [as buyer rebates] is legal in New York.
The NYS Antitrust bureau publicly promotes the commission rebates in New York, and it becomes a consumer protection issue if anti-competitive practices are creating a cloud of mistrust in the legality of commission rebates to home buyers.
IRS PROVIDES RULING ON BUYER REBATES
The IRS letter rules that real estate commission rebates to buyers made as a closing credit is recognized as an adjustment to the purchase price and not considered a buyer’s gross income, therefore it is not taxable income.
If you received a Form 1099-MISC for a buyer rebate from your real estate agent, this is a mistake. Request a correction from the agent. 1) Do not file the Form 1099-MISC with your tax return. 2) Attach a statement on why Form 1099-MISC was a mistake, and quote the IRS letter (PLR 157111-06 FEB 09, 2007).
Inform your CPA / tax professional of the IRS ruling letter and how to file your tax return correctly without including the Form 1099-MISC.
Taxpayer pays the purchaser in one of two ways: (1) after closing, the cash and loan proceeds are distributed to the seller and the agents, and after Taxpayer receives its share of the commission, Taxpayer writes a check to the purchaser pursuant to the agreement; or (2) the purchaser receives a credit at closing in an amount equal to Amount 1 of the commission owed to Taxpayer. The buyer’s agency agreement permits the purchaser to use the payment towards the purchaser’s down payment, closing costs, and/or a reduction in purchase price as directed by the purchaser and allowed by law.
Payments or credits are not taxable income.
The ruling holds that down payment assistance received by a home purchaser represents a rebate or an adjustment to the purchase price, and, as such, is not included in a purchaser’s gross income.
NEW YORK IS ONE OF FORTY STATES ALLOWING COMMISSION REBATES
New York is in good company with a majority of states that allow buyer rebates towards home purchases. The US Department of Justice Antitrust Division works with State Legislature to remove restrictions from licensed brokers offering rebates.
Map of 40 states allowing buyer rebates. Source: US Department of Justice
DOWNLOAD NY BUYER REBATES INFORMATION PACKET
We created an information packet (PDF) on buyer rebates for New Yorkers. Download the PDF to review at your own convenience.
If you have any questions about NYC commission rebates or how to save money with a home buyer rebate, feel free to contact us.
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